What’s the Debt Snowball Method?

Debt snowball keeps you motivated to pay off your debt by providing quick wins, but it doesn’t necessarily provide the most financial savings.

Written by Erin Gobler / June 15, 2022

Quick Bites

  • Debt snowball is a debt payoff method that has you pay off your smallest debt before moving onto accounts with larger balances.
  • The debt snowball method starts with taking inventory of your debt and putting them in order of the smallest balance to the largest.
  • Debt avalanche is similar to debt snowball, but you prioritize debt with the highest interest rate rather than the one with the smallest balance.

When you’re working to pay off large amounts of debt, it can be difficult to know where to focus your attention. Should you pay a little extra on each debt every month? Or is it better to focus on paying down one debt before moving on to the others?

There’s one debt payoff method that has become most popular because of its simplicity and the motivation it provides borrowers: debt snowball.

Debt snowball is a popular debt payoff method designed to help you pay off your outstanding balances one at a time while accomplishing quick wins along the way. Using the debt snowball method, you prioritize your smallest debt, making only the minimum payment on your other debt. Once you’ve paid off that smallest outstanding balance, you can take the money you were putting toward it and start using it to end your next-smallest debt. This creates a snowball effect.

Keep reading to learn more about how the debt snowball method works, how it compares to other debt payoff strategies, and whether it’s right for you.

Inside this article

  1. Using the debt snowball method
  2. Why debt snowball works
  3. Debt snowball vs. debt avalanche
  4. Pros and cons of debt snowball

How to use the debt snowball method

One of the reasons the debt snowball method has become so popular is because of just how simple it is to implement. Here are five steps to start your debt snowball:

1. Take inventory of your debt

The first step to setting up your debt snowball is taking inventory of your debt.

For some people, even finding information about all of their debts may be a challenge. Start with the debts you’re aware of, such as your credit cards and loans. If you have student loans, log into StudentAid.gov to find more information about those. You can also get a free copy of your credit report via AnnualCreditReport.com to ensure you haven’t forgotten any.

The easiest way to organize your debt is to use a spreadsheet—like this one, from personal finance services firm Tiller—but there are also websites and apps specifically designed to help you accomplish this task. In your list, be sure to include the creditor, debt amount, minimum payment and interest rate.

When you’re taking inventory of your debt, you should generally be as inclusive as possible, including credit cards, loans, medical debt and more. However, since many people choose not to pay off their mortgages early, you don’t necessarily need to include that in the list.

2. Order your debt from smallest to largest

Once you’ve made a list of your debt, it’s time to sort it from smallest to largest. For example, if you have a credit card with a balance of $2,500 and a student loan with a balance of $17,000, your credit card debt would go at the top of the list, with your student loan at the bottom.

Now let’s say your minimum payments add up to $525. You would add them to the spreadsheet in order of their balance, with your credit card at the top and the student loan at the bottom, regardless of their interest rate or monthly payment.

The table below shows an example of what your ordered list might look like:

DebtBalanceAPRMinimum payment
Credit card$2,50022%$100
Auto loan$15,0006%$250
Student loan$17,0004.5%$175

3. Set up—or power up—your budget

Paying off debt ahead of schedule is easier said than done since it requires finding additional room in your budget. The good news is that if you’re motivated to do so, you might be able to find places to cut back, even temporarily.

The best way to start is to create a budget and see where your money is going. This will give you an idea of where you might be able to reduce your spending. For example, you might find that your food spending is far higher than you thought it was, or that your streaming services eat up way more of your budget than you thought.

Of course, there is only so much you can cut from your budget. Many people choose to get a side hustle while paying off debt, but if that’s not an option and you don’t have room to cut anything from your budget, the debt snowball may not be the ideal strategy for you. Gauge the affordability of this method using a debt snowball calculator, like this one from debt payment platform Undebt.it.

4. Aggressively pay off your smallest debt

Each month, put all extra money in your budget toward your smallest debt. Meanwhile, continue making the minimum payment on your other debt to make sure you don’t become delinquent on them.

One way to avoid delinquency on your other debt is to set up autopay, so your minimum payment is made without any effort on your part. This gives you the ability to focus entirely on your smallest debt until it’s fully paid off. Just be sure your checking or savings account has enough cash to afford all your minimum monthly dues—otherwise, you’re at risk of paying overdraft fees to your bank.

5. Snowball payment to the next debt

Once you’ve paid off your smallest debt, take the funds you were putting towards it and start putting them toward your next smallest debt. This creates a snowball effect, and because you’ve freed up the money from your other debt, your snowball has grown. With each new debt you pay off, your snowball will grow larger and larger.

Let’s go back to our example above. Suppose you have an extra $200 per month to put toward debt. You would start by putting it entirely toward your credit card, as shown in the table below. It’s not until your credit card is fully paid off that you’d take the $300 per month you were putting toward your credit card and start adding it to your auto loan payment.

DebtBalanceAPRMinimum paymentExtra payment
Credit card$2,50022%$100$200
Auto loan$15,0006%$250$0
Student loan$17,0004.5%$175$0

Why the debt snowball method works

The debt snowball method certainly isn’t the only strategy available to help you tackle your debt. However, it’s become one of the most popular for a reason. It was popularized by Dave Ramsey in his well-known “Baby Steps,” and has been adopted by many other financial experts as well.

There’s no doubt that paying off debt can be overwhelming, and when you’re making monthly payments for months and years without seeing your balance move, it can feel demotivating. The debt snowball addresses that very issue.

“It provides a chance to celebrate small wins to keep you motivated, which can work very well for some people who might lack motivation if they attempt tackling larger balances first,” says Jeremiah Heck, a debt and consumer law attorney at Luftman, Heck & Associates.

Debt snowball vs. debt avalanche: What’s the difference?

The debt snowball method is often recommended as the best debt payoff method because it provides quick wins and motivation for borrowers. However, it only takes into account the balance of your debt rather than other factors.

“This doesn't take into consideration the interest rates of the cards and you will still be accruing interest on those cards,” says Heck.

The other most popular debt payoff method is debt avalanche. It’s similar to debt snowball, where you round up a list of your debt and prioritize one at a time. But instead of prioritizing your smallest balance, the debt avalanche method has you prioritize the balance with the highest interest rate.

The debt avalanche doesn’t necessarily provide the quick wins that the debt snowball does, since the debt with the highest interest rate isn’t necessarily the one with the smallest balance. However, it does provide the most financial savings, since you pay off your high-interest debt first.

Debt snowball vs. debt avalanche: Which is better?

Both the debt snowball and debt avalanche can help you tackle your debt in a sustainable way. There’s not necessarily a right or wrong way to pay off your debt, but each one is better for certain borrowers.

Debt snowball is best for borrowers who are motivated by quick wins, since you’re prioritizing the debt with the smallest balances. Read about how this MBA graduate used debt snowball to pay off student loans while traveling the world.

Debt avalanche is best for borrowers who are motivated by financial savings. Because this method has you pay off your high-interest debt first, you ultimately save the most money in the long run. See how this couple used debt avalanche to pay off $224K in debt in under three years.

It’s easy to get derailed while paying off your debt, especially when you have an overwhelming amount. But at the end of the day, the best debt payoff method is the one you’ll stick to.

Remember that you don’t have to choose between these two methods. Many people choose to use a hybrid of these strategies, taking both the balance and interest rate of their debt into account when choosing which to prioritize.

Tip: Whether you go snowball or avalanche—or something else—it’s critical to take additional steps that support your debt payoff. You should keep an emergency fund, set up autopay for your deprioritized debt accounts and keep your budget fine-tuned to confirm you have the funds to aggressively tackle your debt.

Pros and cons of the debt snowball method

Below we’ll go into a bit more detail about some of the pros and cons of the debt snowball method to help you decide if it’s the right debt payoff strategy for you.

Pros

  • Helps you pay off your debt more quickly, since you have a clear strategy in place
  • Eliminates some of your debt more quickly, since you’re prioritizing those with the smallest balance
  • Provides the psychological wins that many borrowers need to keep progressing

Cons

  • May result in you paying more interest than other debt payoff methods, since you’re ignoring the interest rate when prioritizing your debt
  • Only works for borrowers who have additional money left in their budgets to put toward debt each month

About the Author

Erin Gobler

Erin Gobler

Erin is a personal finance expert and journalist who has been writing online for nearly a decade. Erin’s work has appeared in major financial publications, including Fox Business, Time, Credit Karma, and more.

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